The Great Debate UK
Spain, Italy and Greece are miracles waiting to happen
By Laurence Copeland. The opinions expressed are his own.
Last November, at the time of the Chancellor of the Exchequer’s Autumn Statement, the two men in charge of our fiscal and monetary policy together delivered the gloomiest peacetime message in our history. Those of us who have been pessimistic all along were totally outflanked.
The governor of the Bank of England was absolutely right to decry the sudden vogue for technocracy. As he says, the problems in Europe are not fundamentally about a shortage of liquidity, as many commentators suggest and as politicians are only too happy to agree. They are at root about solvency, about the ability and the willingness of countries like Greece to pay their debts, and as such they are political problems which require political solutions. It is simply wishful thinking to imagine that an economics PhD somehow provides access to the secret of how to balance the books of a society which has long been living beyond its means, as have the majority of euro zone members. If it is hard for a Government with a sound electoral mandate to deliver painful medicine, it is likely to be even harder for one with no mandate at all.
Far from being evidence of maturity, the way the political class in Greece and Italy has given way to technocrats is a total abdication of responsibility. What needs to be done to transform the prospects of Greece and Italy, Spain and Portugal involves no rocket science. No advanced macroeconomic theory is needed to get the basics right: to cut Government spending, introduce honest tax collection (especially in Greece and Italy), privatise and deregulate transport systems and utilities, and most importantly to allow labour markets to function properly so as to reduce unemployment to a minimum, rather than to maximise it, as they do at the moment.
If this prescription sounds familiar, so it should. Britain’s situation in 1979 was not unlike that of the ClubMed countries today, with the sole, critical difference that we had been able to print our own money – which we did aplenty in the 1970’s, generating inflation as high as 25 percent by the middle of that awful decade. In the end, the situation was salvaged not by an economist, but by Mrs Thatcher, armed with nothing better than the Micawberish economics of her father’s Grantham grocery.
By contrast, Italy had a professor of economics, Romano Prodi, as Prime Minister from 1996 to 1998 and again from 17 May 2006 to 8 May 2008, but he achieved very little in the way of reform.
Look at the first two columns in the table below, which give indicators of the scale of economic distortion: the Transparency Index, which focuses mainly on the extent of corruption, and the World Bank’s Ease of Doing Business Index, which attempts to measure the freedom of the corporate sector to fulfil its function of creating wealth and jobs. No West European country should ever be outside the top 30 on either index, and the rankings for Greece and Italy – behind many Third World countries (and not only in SE Asia) – ought to have shamed them and the E.U. into action a long time ago.
from The Great Debate:
The abyss and our last chance
By Carlo De Benedetti The opinions expressed are his own.
In a magnificent book published a few years ago Cormac McCarthy imagines a man and a child, father and son, pushing a shopping cart containing what little they have left, along a back road somewhere in America. Ten years earlier the world was destroyed by a nameless catastrophe that turned it into a dark, cold place without life.
There is no history and there is no future. But there is an objective: to head south toward the sea. Mythical places, only vaguely perceived, where there might be salvation. The father is getting older and is ever more weary. But he has the child with him. And he has his objective. He wants to take him southward to the sea. Toward a future that may still be possible.
Today, is the western economy, in particular the Italian economy, that world destroyed by an Apocalypse? Are we pushing that cart, containing the few things we have left, toward a mythical sea of which we know nothing, or even what it is like or where it is?
Re-reading the book I was tempted to think this. To think that those pages, written in 2006, were in some way a prophesy of what we are living through today. Never before has an entire productive system, our own, been so fundamentally questioned.
I have been convinced for some time now that the huge financial crisis of the last few years is the litmus test of a deeper crisis to do with the universal economic order that has lasted through the centuries, with a shift of the balance of world wealth toward new countries.
The world economy is evolving from industrial and political isolationism to information and labor globalization, a societal convulsion of no less magnitude than the industrial revolution. The process will create both “winners” and “human collateral damage”.
The “shift of the balance of world wealth toward new countries” is not new. It has been under way for a long time as producing countries cast an ever wider net for the natural and human resources of least cost. Third world economies enjoying these economic windfalls must understand that their effect will be transient…at best an opportunity to establish their economies as a supplier of something more sustainable that the world needs and will pay for.
In the scramble for economic survival ALL countries must identify, attack and eliminate the huge inefficiencies, the tax evasion, the waste, and the corruption. They must separate state needs from state wants.
In a time when available revenues will likely never again allow the prevalent “anything and everything” politics of the past, there will be pushing and shoving between competing interests. Elected officials will, for the first time, have to learn how to prioritize the budgetary process.
We live in “interesting times”. The ride may be wild, and those do not participate or are thrown off in the process may well not be able to get back on board.
There will be many choices. We must choose wisely.
Put the euro zone out of its misery
By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.
Let me make a wild guess – just a hunch, a vague feeling, the kind you get when you hear a football club chairman say “the manager has my full support”. My forecast is that the IMF monitors currently poring over the Italian government’s books will uncover a black hole somewhere, probably one big enough to swallow the euro zone, and the discovery will leave them as shocked as Captain Renault when he found there was gambling going on at Rick’s Bar in Casablanca.
My gut feeling is based on a deeply rooted suspicion of Italian statistics dating back to the early 1970’s, when I got my first job in academic life, as a research assistant in the University of Manchester. In that more tranquil era, it seemed possible to uncover a number of stable relationships between macroeconomic variables for all the other countries in the industrial world, but somehow never for Italy, which was always the outlier. Suspicion of the data is reinforced by the well-established claim that as much as 25 percent of Italy’s production is in the economia sommersa, the underground economy, exempt from taxation, unmonitored and unregulated (in fact, the Italian authorities have sometimes seemed to take a pride in its size, notably in 1987, when by a sleight of the statistician’s hand, Italy’s GDP was deemed to have overtaken that of Britain, thanks to an overnight reassessment of the scale of the country’s black market).
Even if Italy’s predicament is no worse than it appears from official statistics, the outlook is grim. It is hard to imagine a Berlusconi-led government successfully enforcing a serious austerity regime, but neither is it likely that an opposition dominated by ex-Communists could succeed where he failed. Moreover, as with Greece, those who are enthusiastic for a non-partisan administration made up of technocrats forget that mustering support in parliament is not enough. Restoring Italy to fiscal health will need a government able and willing to enforce spending cuts, raise taxes (or at least collect them more vigorously) and deregulate labour markets in the face of bitter and potentially violent opposition from trade unions, the professions and probably much of the public. It is not obvious to me that a government of supposedly neutral technocrats is better placed to achieve all this.
With a total debt of nearly two trillion euros, even a relatively modest haircut for Italy would be ruinously expensive to the European Financial Stability Facility (EFSF), and a Greek-style coiffure of 50 percent or more would use up all the additional funding promised (but not yet delivered). Moreover, there would be devastating consequences for the creditworthiness of the core countries — France in particular, but even Germany, and of course for all the major European banks.
For months now, commentators have been urging the EU authorities finally to get ahead of the curve, something they have repeatedly failed to do in the case of Greece. They began by refusing to admit the need for a bailout, then denied the inevitability of a partial default, then were forced to recognise the need for a 20 percent haircut, and have now been reduced to begging Greece to accept a 50 percent writedown, an offer which will still leave the country facing a crippling debt-to-GDP ratio for a decade or more and which may be rejected anyway — in which case we will end up with a disorderly default after all.
The same sort of slow-motion trainwreck with Italian debt will sink Europe’s (and possibly the world’s) banking system – yet the authorities in Brussels and Frankfurt seem set on that course. To those who ask whether we face another Lehman Brothers, the answer is yes – and probably worse than in 2008.
Having enlightend us with why it should be put out of its misery, now show us how?
Its that HOW that inflicts pain that no-one is willing to bear – perhaps a glance at your colleagues graphics might help illuminate that -
http://graphics.thomsonreuters.com/11/07 /BV_STRSTST0711_VF.html
from Hugo Dixon:
Chaotic catharsis
Chaos, drama and crisis are all Greek words. So is catharsis. Europe is perched between chaos and catharsis, as the political dramas in Athens and Rome reach crisis point. One path leads to destruction; the other rebirth. Though there are signs of hope, a few more missteps will lead down into the chasm.
The dramas in the two cradles of European civilization are similar and, in bizarre ways, linked. Last week's decision by George Papandreou to call a referendum on whether the Greeks were in favor of the country's latest bailout program set off a chain reaction that is bringing down not only his government but probably that of Silvio Berlusconi too.
The mad referendum plan, which has now been rescinded, shocked Germany's Angela Merkel and France's Nicolas Sarkozy so much that they threatened to cut off funding to Greece unless it got its act together -- a move that would drive it out of the euro. But this is probably an empty threat, at least in the short term, because of the way that Athens is roped to Rome. If Greece is pushed over the edge, Italy could be dragged over too and then the whole single currency would collapse. So, ironically, Athens is being saved from the immediate consequences of its delinquency by the fear of a much bigger disaster across the Ionian Sea.
Italian bond yields, which were already uncomfortably high, shot up after the Greek referendum fiasco. Berlusconi was forced to pacify Merkel and Sarkozy at the G20 meeting in Cannes by agreeing to a parliamentary confidence vote on his government's lackluster reform program as well as to monitoring by the International Monetary Fund. The humiliation in Cannes, where Berlusconi's finance minister pointedly failed to back him, could be the final nail in the PM's coffin.
The end of the Berlusconi and Papandreou eras should, in theory, be a cause for celebration. Although the Italian PM's behavior has been scandalous, whereas the Greek PM's has not been, they have both led their countries deeper into debt. They are also both members of political castes that have enfeebled their nations for many years. Getting rid of them could be the start of a renewal process.
The snag is that it's not certain that what comes next will be better. In both countries, where I have spent much of the last fortnight, the best outcome would be national unity governments committed to rooting out corruption and cutting back overgenerous welfare states. This could happen either before or after snap elections. Unfortunately, the old political castes die hard. They could continue bickering over who suffers the most pain and who gets the top jobs until they are staring into the abyss -- or even fall in.
“old political castes die hard”
That is why the eurozone monetary policy is not the quantitative easing (sounds like flatulence) used in england and us of america.
Since 26 October, the eurozone membership showed errant politicians that their fiscal policy either performs or reforms. Recalcitrant Greek politicians now understand that other eurozone members are not going to financially support them.
So England and its City financiers need to realise that the eurozone is not going to prevent Greece and Italy receiving their fiscal spanking. And the rest of Central Europe is solidly behind markets punishing politicians from any caste who wallow in the troughs of corruption and lassitude.
No amount of anti-euro inflammatory headlines from the uk section of reuters will change that course of action.
Capitalism and democracy under threat from euro zone crisis
By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.
It takes quite a lot to make me feel sorry for politicians, especially the European variety, but I must say that Nicholas Sarkozy and particularly Angela Merkel have a right to be livid at the news that the Greek government now proposes to hold a referendum on whether they will agree to be given another gigantic dollop of aid. Having only reached agreement (of a very vague kind) at last week’s summit in the early hours of the morning, you can imagine how the French and German leaders must have felt when they discovered that their marathon negotiating sessions may all have been in vain. It seems the Greeks are now too wary of foreigners bearing gifts to accept their largesse without weeks or months of prior deliberation and debate.
The acceptance of the referendum proposal is apparently not a foregone conclusion, which is just as well, since it is plainly insane.
First, consider the wording of the referendum question. Opinion polls appear to show that Greeks remain keen on staying in the EU (and maybe even in the euro zone), so as things stand at the moment the outcome could be a majority in favour of rejecting the deal, but staying in the EU. But is this option still open to Greece? If not, the Greek government could end up with a mandate to follow a road that is already clearly blocked.
To pre-empt this scenario would require some sort of clear statement from Brussels about whether they would be willing to allow Greece to stay in the euro zone and/or EU if it rejected the latest round of austerity measures.
Even supposing the details of the referendum are sorted out, what then? How long is all this supposed to take? The vote could hardly go ahead before mid-January at the earliest. What on earth does Mr Papandreou think will be happening in the markets in the meantime? Does he think they will simply sit on their hands and wait patiently for Greek democracy to grind through the gears?
In reality, the momentum of this crisis is so inexorable that you can be quite sure that the deal currently on offer will have become totally irrelevant by the time any referendum is held, if the offer hasn’t anyway been withdrawn by the time you read this.
Spot on.
One thing I do find very strange in all this is the stubborn over-valuation of the euro. One can only assume that if and when the innumerable problems of the eurozone are resolved, one way or another, it will climb even further, exacerbating the already shaky trade situation of all its less efficient members.
Yet throughout all this, I don’t think I’ve heard a single EU politician or bureaucrat even express a desire for the currency to fall somewhat. One can only draw the conclusion that none of them really thought this through, and the only possible explanation for that is that they were all so fanatical about their beloved “European Project” that they couldn’t think straight.
The euro zone marriage is over
By Laurence Copeland. The opinions expressed are his own.
Under the Arc de Triomphe, tourists can gaze up at the engraved list of Napoleon’s great victories: Austerlitz, Jena, Wagram… Perhaps a similar triumphal arch should be built in Brussels to commemorate the string of victories won by a tiny band of heroic Eurocrats over the mass of their combined electorates: Rome, Maastricht, Lisbon, Wroclaw, and now Berlin, where, to nobody’s surprise, the integrationists in the Bundestag have easily seen off the opposition to their plan to bolster the EFSF. Cue the now-familiar backslapping in Europe after each of their knife-edge victories over the forces of democracy.
The starting point for these Eurocrats/integrationists is that the popular will is simply an obstacle on the road to the ultimate destination of a United States of Europe. Whenever they encounter one of these inconvenient roadblocks, they fume, argue among themselves about the merits of alternative routes until they finally swerve triumphantly round the obstacle, congratulating each other for their ingenuity and skill.
The trouble is that this game gets more dangerous at each stage. In the present case, it is reported that three out of four German voters is opposed to supporting Greece and co., and they’ve not even started paying for it yet. Moreover, it is not as though the largesse is going to create a reservoir of gratitude alongside the Mediterranean – far from it. Judging by reactions in Greece, the outcome will be a legacy of bitterness for decades to come.
It is important to realise that arguments about the cost of saving the euro zone are ultimately sterile, because under current conditions there is no limit to the commitment that the Germans are being asked to make – a point which is not lost on people in Germany. The €440bn additional funding for the EFSF sanctioned by the Bundestag is simply a first instalment, sufficient to cover the cost of propping up the bond markets on the assumption that it will prevent contagion from the Greek imbroglio – which, of course, there already is aplenty. It is several months too late to stop the panic spreading beyond the original porcine four – Portugal, Ireland, Greece and Spain – to engulf Italy and even to some extent France. Back-of-the-envelope calculations (which is as much as it is worth doing) suggest that the amount needed could be of the order of €2 trillion or more, equivalent to about 80 percent of Germany’s national income.
This may seem an enormous sum of money, but it is merely the downpayment on a potentially unending stream of subsidies in the nightmare transfer union scenario, as the Greeks slide back into their old, profligate ways, the Spanish continue to resist labour market reform, and the Italians replace the Berlusconi government with an administration stuffed with ageing ex-Communists.
How long will the Germans carry on financing this orgy? Like a bishop at a Berlusconi bunga-bunga party, they will either explode in a destructive rage or find the temptation to join in irresistible.
completely agreed with these arguments. I would add one distinction to the mix: most people belief of the efficacy of fiscal stimulus is based on the 30s. These were times when governments were worth 30% of the economies. Nowadays, governments such as France are worth 56% of the economy. The game has changed and they cannot go on expanding from that. (but as the article says, the political will to unfurl government is not there. people on the continent are simply not ready.)
from The Great Debate:
The sun sets on sultan Berlusconi
By John Lloyd The opinions expressed are his own.
The sultans, as shapers of history, have gone from the world: but they leave behind the memory of a style of rule in which the division between the private life and the public one, between sexual arrangements and high politics, between the settlement of personal debts, whether of money or honor, and the state treasury barely existed. That was true of kings and princes, Russian tsars and Chinese emperors too: but because the west began (with mixed success) to separate the private from the public some centuries ago, the Sultans of Turkey - who came to the gates of Vienna at the height of their imperial reach and who fascinated and terrified Europe for centuries - are still seen here as the epitome of luxury and power combined.
In Silvio Berlusconi, the Italian Prime Minister, the West finds the nearest thing it has to a Sultan: luxury and power combined. The idea is that of Giovanni Sartori, the Italian social scientist and commentator, who has taught for many years at Columbia University in New York and who, like all writers on the contemporary Italian scene, has had to put Berlusconi at the center of his commentary. His idea expresses the unique quality the media mogul has brought to democratic government in the modern age: a rule for, by and with himself first.
In this, he betrays the legacy of a much greater Italian, Niccolo Machiavelli, who anticipated the modern age of states by his advice to the Prince to separate his private life and family from his public duties. Berlusconi has vaulted back more than half a millennium to the period of the Medicis and the Borgias. The public is private: the state absolves his alleged crimes or future transgressions through laws passed by his governments. His main business, media, especially TV but also his newspapers and magazines, spread the balm of the good life which his governing style proclaims. His private life cannot be other than public: his latest supposed affairs are proclaimed by his estranged wife to be with minors, and are surrounded by wildly improbable stories on his part, together with the use or abuse of the law and police protocol. He seems genuinely surprised when taxed with this: for the Sultan, there is no problem: private, business and state life are all one seamless web. And if a harem is included, well, “I’m no saint!” is one of his best known remarks. Unfortunately (for him) Italy remains a democracy and the Sultan, especially when his powers fade, is harried from all sides.
And now the power is fading. The Sultan still dresses in dark silk shirts and puts on his built-up shoes and does walk-abouts among the summer crowds in Porto Rotondo, near his Sardinian villa-palace. He still has the knack for the phrase which holds attention: this past week, it was that he was recommending a package of cuts and reforms and tax rises while his heart wept blood and tears. He still has his court, marshalled by his faithful, indispensable, Grand Vizier, Gianni Letta.
But the core promise of his three premierships – no more taxes – has been blown away. Italy, fourth biggest economy in Europe, founding member of what became the European Union, member of the Group of Eight and of NATO, is now under huge pressure: if, after the August holiday, hedge funds try to test the patches put upon the EU’s finances by Germany and France, Italy could be in the front line of the attack and could be reduced to the status of its Mediterranean neighbor, Greece.
None of the news, under the azure skies and the broiling sun, is cheering. Fiat, which had hugely improved under its Italian-Canadian CEO Sergio Marchionne, has been hit badly by the slowdown in the Brazilian economy – one of its biggest markets, and site of some of its biggest plants. Its most successful models are the stylish little Pandas and Cinquecentos: but it’s a law in the car business that small cars mean small profits, and its bigger cars, the Alfas and the Lancias, for all their beauty, can’t beat the Mercedes, the BMWs and the Audis. One of its most successful companies is the engineering defense group Finmeccanica: but the defense market doesn’t look good, at a time of budget cuts. Its wine is more popular, and its fashion as desirable as ever: but consumption of both is bound to suffer. That which has underpinned the Italian economy is weakening now.
I want to warn that my money resource means is likely to undergo some critical surgery as I recall that so-called grandmother parted that way but went on living some 9 years ago plus I suspect they want to involve police Friday after next one to force me to be drafted because consulates will too be on holiday till Monday after next one and stay vigil please even if relief comes whilst I will remain indoors after next Friday.
Could Europe be on the cusp of a Lehman moment?
By Kathleen Brooks. The opinions expressed are her own.
The euro zone debt crisis has now spread from the sovereigns – after the ECB came in and purchased Italian and Spanish debt – to the banking sector. Although the EU authorities put in place a short-selling ban, which has another week to run, the banking sector is back at the pre-ban levels or in some cases even lower.
Europe’s banks are by and large less capitalised than their U.S. peers. They are also exposed to Europe’s sovereign debt and European loan books. Even if a member state manages to avoid a default, growth is now slowing and we could be in line for another recession that would most likely increase bad debts and further erode banks’ profits.
As if that wasn’t enough, German Chancellor Merkel and French President Sarkozy announced a proposal for a financial transactions tax – a Tobin tax – to pay for bailouts to Greece, Portugal and Ireland. This will be discussed at the next EU summit in September, and if implemented would only make it harder for banks’ to boost their capital bases going forward.
The Basel three global regulatory standards for bank capital adequacy requires the world’s largest banks to boost their Tier 1 capital ratios and to hold higher quality capital as a buffer in case of financial shocks in future. These rules were introduced this year and since then Europe’s banks have been in a rush to raise capital. Pressure was ramped up after stress tests that were released in June showed that 24 banks needed to raise extra capital. Eight banks failed the test, while 16 had core tier 1 capital ratios below the 6 percent threshold.
So the banking sector in Europe was already exposed even before growth started to slow and the sovereign crisis spread to Italy and Spain. If markets get a hint of trouble in the banking sector the rumour mill can go into overdrive. This has driven stocks like Unicredit and Societe Generale lower by 30 percent and 40 percent respectively since the start of August.
Earlier this week there were rumours that some banks had to borrow dollar-based funds from the U.S. Federal Reserve’s swap facilities for foreign banks. This is considered the lender of last resort when you can’t raise money from the inter-bank market. The sums were fairly minimal – EUR500mn and EUR200mn – however, they suggest that some European banks are in trouble and a liquidity crunch could be in the wings.
Any five-year old child knows that if you put ten marbles into a tin can, you can only take ten marbles back out. No amount of wishful thinking, dreaming, or praying, will yield that eleventh marble from inside that can. That eleventh marble does not exist. It never did, and it never will. All discussions about the eleventh marble are the product of imagination. The eleventh marble is a fantasy.
Private central bankers issuing the public currency as interest-bearing loans operate on the belief that they can put ten marbles (dollars) into a tin can (the world) and magically get 11 marbles back out. Thus, we may conclude that the bankers are dumber than five-year old children! But unlike five-year old children, the bankers will take your home, your business, and your nation when they don’t get that eleventh marble! The spoiled child may cry and throw a tantrum, but that will be the end of their upset. The spoiled banker, however, in his or her arrogant rage that they cannot have the eleventh marble their imagination says must still be in that tin can, may start a war before they will admit that eleventh marble was never really there.
Economies are like tin cans. Before you can take a marble out, you must have put a marble in. Nobody can give you a marble that does not exist, yet this simple reality is lost to the priests of that fantastic religion called banking in that unholiest of temples called the IMF. Their religious doctrine seems to be that there must always be an eleventh marble inside the tin can, and that the tin can unfairly withholds that eleventh marble, indeed cheats them of their right to the eleventh marble, purely out of spite. That faith in the existence of the eleventh marble, unseen and improvable, is the article of faith the religion of banking rests on. It is far easier to burn the heretics than to question the dogma.
Today we see the bankers, having already retrieved their ten marbles from the tin can, flogging the world for that missing eleventh marble. Greece does not have that eleventh marble, so they turn to Germany and ask, “Do you have an eleventh marble”, and Germany replies, “Sorry, but the bankers already took the ten marbles they put in our tin can, and we are searching for an eleventh marble ourselves. Try the Americans.” The Americans, of course, have only just surrendered the last of their ten marbles back to the bankers and are looking under seat cushions for that missing eleventh marble nobody seems able to find.
But the eleventh marble will never be found. After all that mayhem brought down on the tin can there still will be no eleventh marble. It does not exist. It never did, and it never will.
The problem with all modern reserve banking systems is that the moment the first bank note goes into circulation as the proceed of a loan at interest, more money is owed to the banks than actually exists. Ten marbles have been put into the tin can, but the bankers see 11 marbles owed back to them. Sooner or later the non-existence of that eleventh marble will create a crises of faith. People will stop believing in the religion called private central banking, and that crisis of faith will bring the system crashing down, as did the Temple of Baal in ancient times when the Syrians saw through the priests’ trickery. This evil magic of creating money out of debt was a fraud all along, as fraudulent and silly as the idea that one can put ten marbles into a tin can, and take out eleven.
In ages to come economists will look back at this failed experiment in debt-based currency, and dump it into the same category of human folly as Tulip mania, The Nation of Poyais, Credit Mobilier, the Great South Seas Company, and Mortgage-Backed Securities.
Why is the West bankrupt?
By Laurence Copeland. The opinions expressed are his own.
The UK, USA, the PIIGS (Ireland and Italy are together in the same stye), France is in poor fiscal shape – OK, Germany is ostensibly living within its means, but it looks a lot less solvent when you remember that it has underwritten the rest of the euro zone (in large part, to protect its own irresponsible banks). In any case, as I have argued in previous blogs, this or a future German Government is likely to cave in to the pressure from its own electorate and from inflationist economists at home and abroad to join the party and spend, spend, spend. Only Australia and Canada, riding high on the commodities price boom, and a handful of small countries, look stable.
Where will it all end?
With inflation, almost certainly, but beyond that, it is hard to say. However, there is one prediction I would offer for the medium to long term outcome, and it applies not only to the euro zone, but to Britain and America too – in fact to the whole of the comfortable, complacent industrialised world – and it is this.
We are living through the death throes of an ideal, a dream which has turned into a nightmare – it is the end of the social democratic welfare model.
I am referring to the whole panoply of benefits (entitlements, as they are called in America), labour market regulations (employment protection, minimum wage legislation, limits on the length of the working week etc. etc.) and other social democratic devices intended to inflate like airbags to protect us all from shocks from any possible direction. The whole edifice built up in Western countries to shelter us from the need to earn a living is now clearly unsustainable. We can no longer afford a regime which allowed, indeed encouraged us to live permanently beyond our means both as individuals and as a society.
Two aspects of the current crisis make this apparent. First, and most obviously, we are all more or less like Greece – our debts may be proportionately smaller, but they are still crippling. Our pensions regime may be less egregiously wasteful than Greece’s, but they are still more generous than we can afford. As for healthcare and care for the aged, they are a crippling burden and demographic pressures will make them impossible for any country to sustain at anything like present levels.
“The asians are now living the period of the Victorian eras. We (asians) sell our souls to survive. We accept low wages so that have a chance to earn a living. But eventhough our wages are low, we save for the next generation.” syching
syching, selling your soul to survive is not something americans will do without a revolution first. We, as a nation, are getting pretty fed up with a corporate run government, and we’re getting fed up with being forced to compete with foreign, communist government supplied labor too.
If you want to help, quit selling your soul.
from Breakingviews:
Berlusconi really must go
By Hugo Dixon The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Silvio Berlusconi really must go. It’s no longer about abuse of power and “bunga bunga” sex parties. His continuation as Italy’s prime minister could drive the country into a financial death spiral. His own supporters are shaken and the public is afraid. But the left-wing opposition is behaving responsibly, so there’s some hope.
Italy pulled back from the brink -- slightly -– on July 12. After nudging above 6 percent, the yield on 10-year government bonds fell back to a still uncomfortable 5.6 percent. Part of the explanation is that the opposition agreed to a fast-track parliamentary vote on the government’s new austerity program. The multi-year fiscal squeeze of more than 40 billion euros should therefore be approved by the end of the week.
But this is not enough. Berlusconi is in virtual open warfare with Giulio Tremonti, his finance minister. Even though things have been patched up for now, the idea that this dysfunctional government could serve out its term until 2013 is troubling. Italy could lurch from mini-crisis to mini-crisis – with the borrowing cost on its debt, currently at 120 percent of GDP, ratcheting ever higher. The more Rome is perceived by financial markets to have fallen behind the curve, the bigger the fiscal adjustment will have to be to get it back on track.
Italy is too big to bail out. But it is a rich country -- which can be bailed out by its people. That also means Italians have a lot at stake if the country goes down the tubes. In the past they have been far too complacent about their country’s political and economic mess. The mini-scare over the last few days is, therefore, salutary. It may help concentrate minds about the need to make some medium-sized sacrifices now -– such as front-loading the austerity program, much of which will only kick in from 2013 -- in order to avoid bigger sacrifices in the future.
Now, there’s the small question of how to ease Berlusconi out of power. He’s extremely unlikely to fall on his sword. Indeed, he has continued to use the remaining vestiges of his influence to save his own skin rather than the country’s -– as witnessed by his recent attempt to pass legislation to delay the payment of a 750 million euros fine in connection with a 20-year-old scandal. So Berlusconi will have to be pushed out by members of his own right-wing coalition, which has a thin majority. There might just be a chance of this happening if market jitters continue.
Then, of course, there’s a question of whether Berlusconi would be replaced by anyone better. There are, broadly speaking, two options: a grand coalition led by a technocrat such as Mario Monti, the former European Commissioner; or early elections. The first might be a reasonable outcome, securing some short-term stability. But a technocratic government wouldn’t have a mandate to push through the long list of structural reforms and constitutional changes that are needed to kick-start growth in this sluggish economy. For that, new elections would be required.
